Archive for July 22nd, 2008

Vinod Khosla is pouring his own millions into science experiments to counter global warming — and to prove he’s the smartest guy in the Valley.

Making cement without also making carbon dioxide seems impossible; the basic chemistry of the process releases the gas. But maybe that’s not really true, Stanford University scientist Brent Contstantz began thinking last year.

Vinod Khosla

Of course, it was only a theory, he told himself, but the market for cement is so large — about $13 billion annually in the United States alone — and the pressure to reduce its effect on the environment so strong that he sent a 12- line email to venture capitalist Vinod Khosla.

“I have an idea for a new sustainable cement,” Contstantz wrote. “I’m sure you are already aware that for every ton of [standard] Portland cement produced, approximately one ton of carbon dioxide is released into the atmosphere. My cement wouldn’t do that; in fact, it would remove a ton of carbon dioxide from the environment for every ton of cement produced.”

Khosla, who knew Contstantz only casually — the two hadn’t been in touch for 20 years — was on vacation. But after a discussion that lasted only an hour, he told the scientist, “I don’t care about the rest of the business plan. You don’t need to estimate costs. You don’t need to do a cash flow. You don’t need to do a presentation. Just hire five people, set up a lab, and go.”

It was a classic performance from Khosla, a man who “enters any chamber believing he’s the smartest man in the room,” in the words of one longtime VC. “In 30 seconds, in one paragraph, I knew this was worth doing,” Khosla says now, adding that the cement startup, called Calera, “may be our biggest win ever.”

Over the past four years, Khosla has become the world’s foremost investor in environmental startups. He has committed an estimated $450 million of his personal fortune to financing 45 ethanol factories, solar-power parks, and makers of environmentally friendly lightbulbs, batteries, and automotive components.

These investments have made him the most prominent of an increasingly rare breed, the so-called angel investors who put their own funds into the youngest of companies — including outfits that are pursuing the most innovative, but not yet commercially viable, approaches to serious problems such as global warming. It’s a kind of seed-stage investing that traditional venture funds have largely abandoned.

And rightly so, Khosla says. “If somebody comes to you with a cold-fusion idea, you should not be funding it as an investor with other people’s money. Funding it, if they’re credible people, as a science experiment, as a hobby, is perfectly okay — as long as it’s your own money.”

Khosla’s green investing has made him something of a celebrity, mentioned in the media with the likes of mogul Richard Branson, former President Bill Clinton, Hollywood producer Stephen Bing, and General Motors chairman and CEO Richard Wagoner.

Vinod Khosla with Obama, First from the right

I‘ve known Khosla since his days as a recent immigrant from India more than two decades ago but hadn’t seen him in years until we met in his office in Menlo Park, California, earlier this year. Khosla Ventures is tucked away in an unprepossessing corner of a redwood complex of small offices.

The decor is rental-furniture bland. The only reading set out for visitors is a four-month-old issue of National Geographic with a cover story on biofuels. Khosla’s own office is spare, with 15 large black-and-white photographs of his four children on the walls.

Although he lives near his office, this morning he has already driven one of his daughters to school in San Francisco, a 90-minute round-trip that he makes every weekday in order to spend time alone with her. Later, he’ll review several business proposals, prepare to announce three new investments and the hiring of an operational manager for his firm, and polish his remarks for an appearance at the United Nations.

To meet with me, he has taken a break from writing a position paper on where the world will get the biomass it needs for oil independence. He writes two or three such papers a month, averaging more than 100 pages a year. “Nobody wastes less of the time in his life than Vinod,” says venture capitalist Roger McNamee, whose office at Integral Capital Partners was for a decade just down the hall from Khosla’s, at the storied Silicon Valley partnership of Kleiner Perkins Caufield & Byers.

During nearly two decades at Kleiner Perkins, Khosla lost far more often than he won. He wasn’t responsible for the firm’s best-known successes of his era — Amazon, Netscape, and Google.

By my reckoning, he was most closely involved with 42 startups. Most were sold or closed, although a few still operate privately. Eleven, however, went public (mostly during the dotcom bubble). That’s better than 25% — not at all bad in the VC world.

And measured by return on invested capital, Khosla’s record has been outstanding. His half-dozen best deals at Kleiner Perkins multiplied $314 million in investments into $15 billion in cash and stock — an increase of nearly fiftyfold, and five times more than all the money invested in all 42 companies.

It was at the peak of his success in late 2000 and early 2001 — when Fortune named him the “most successful venture capitalist of all time” and he later appeared on the covers of two other national business magazines in a single week — that he decided to change.

Shares in his most successful company, Juniper Networks, were trading at more than 40 times their offering price a year and a half earlier. But he foresaw a bleak near future for optical networking equipment, in which he had made his name.

Just as telecom stocks, including Juniper, were reaching all-time highs, he warned in a keynote at a Goldman Sachs conference that at least one of the industry’s most famous companies would soon be bankrupt. “If I really believed what I was saying, I told myself, then it was time to look elsewhere,” he recalls.

Around that time, a friend introduced him to a space-research scientist with a business idea unlike any Khosla had considered before: generating electric power from water, oxygen, and natural gas.

Seven years later, the company, now known as Bloom Energy, has yet to introduce its first product, but Khosla marks his initial support for it as a turning point in his career. “I knew then I wanted to go green,” he says. In 2004, he struck out on his own. “I felt that energy needed more exploring than a responsible venture fund should do,” he says.

At Khosla Ventures, he has put his own money into graphics-display, data-center, and wireless technologies, but environmental startups are what excite him. He has been on a campaign to end American dependence on petroleum since oil was trading at a quarter of its present price.

Unlike his more famous former partner at Kleiner Perkins, the energetic John Doerr — who has choked up onstage recounting his daughter’s worries about climate change — Khosla is unemotional about going green. He hopes to improve the world by developing, for example, cleaner-burning coal and cars that run leaner, but his more fundamental motivations seem to be the size of the potential market and, even more important, the intellectual challenge of intractable problems.

Some Khosla Ventures deals are so preliminary that even he calls them “imprudent science experiments” rather than companies. “Science experiments are key to solving the problems of global warming and energy independence,” he says.

“Incremental approaches will not work.” He has backed a company developing automobile injection systems that could double the fuel efficiency of gasoline engines, if its technology works. He has millions riding on efforts to make fuel from materials other than corn, although none has advanced beyond the pilot or demonstration phase.

He has put money into a company that believes its microbes, which can turn sugar into the basis for a malaria drug, also can turn it into cheap substitutes for gasoline — and he did so long before the founders had figured out what the company’s product would be. “We’ve funded an incredible number of things that would make no sense at all for a traditional venture fund,” he says.

Khosla has long seemed drawn to venture capital by the chance to satisfy his curiosity and to demonstrate that, whatever the question, he has the answer. “I’ve never been interested in business, surprisingly,” he tells me.

“I‘m a techie nerd. What I like is intellectual stimulus. It’s fundamentally what I enjoy.”

He was smitten by Silicon Valley as a teenager in New Delhi in the 1970s. Every week, he would rent and carefully read worn-out copies of what was then the startup publication of record, Electronic Engineering Times.

In the 1990s, he was inspired to concentrate on optical communications while reading books on the physics of optics — during a vacation in Hawaii. On another typical summer break, he studied complex systems at the Santa Fe Institute; to prepare, he worked for six months with a tutor, brushing up on calculus and linear algebra.

When he got interested in climate change, he prepared an extensive briefing book for himself, loosely based on Danish political scientist Bj?omborg’s book, The Skeptical Environmentalist.

Khosla’s almost obsessive thoroughness carries over into his private life. In the late 1980s, before hiring a designer for his new 12,000-square-foot home on a woody hillside, he read more than 100 books on architecture. He likes to set goals that can be measured.

To remind himself to spend more time with his eldest child, he used to keep a jar of jelly beans on his office desk, removing one each Monday; those that remained were the number of weekends until she would go off to college. Although he travels frequently, he requires himself to be home for dinner at least 25 evenings a month; his administrative assistant monitors his performance.

Sometimes his own bookkeeping is quirky; in midconversation with me on a cell phone several years ago, he pulled into his driveway, announced that he was “officially at home,” and kept right on talking for an hour. But when I ask how often he skied last year, he answers immediately and precisely: 45 days.

Fellow investors describe Khosla as driven, arrogant, sometimes single-minded. He likes to argue and is so tenacious that his former partners often sent him into negotiations to defeat, or at least wear down, the opposition.

“What makes him invincible is that he doesn’t care if you don’t think well of him,” says an ex-partner. After Khosla expressed skepticism about hybrid cars, he responded to every last criticism of his position on the Gristmill blog. “I want to test my ideas,” he explains. “I don’t really care what they think, but one in 10 responses is something I should consider.”

“What makes Khosla invincible is that he doesn’t care if you don’t think well of him,” says an ex-partner.

Initially rejected by Stanford University’s Graduate School of Business, Khosla lobbied the dean’s office for two years, sometimes making weekly calls, until he was finally admitted. “The best way to get Vinod to do something,” says longtime friend Doerr, “is to tell him you don’t believe he can do it.”

But there is at least one skill Khosla seems to lack. As his official biography has it, while still in his twenties, Khosla helped found two extraordinarily successful startups, Sun Microsystems and an early design-automation company called Daisy Systems.

Vinod Khosla

He wrote the business plan for Daisy while still a student at Stanford, but others ran the company and he soon left. At Sun, he was replaced early on as chief executive by his former roommate in business school, Scott McNealy. Khosla “had no people sense,” recalls a Sun director of that era.

“He would go through the factory floor and terrorize people and shut down the line. There was Vinod’s way and no other way. It drove his cofounders crazy.” (Khosla says that his disagreements with the board were frequent and significant but his involvement with production wasn’t among them.)

To keep him with the company, the board promoted him to chairman, but after he boycotted four board meetings in a row, sitting resentfully alone in his office, he was fired. He retained a large stake in Sun, however, as well as in Daisy, and their public offerings made him rich.

His brief, troubled tenure in the executive suite rarely stops him from telling startup CEOs what they ought to be doing. At board meetings, he’s insistent — “analytical, unemotional, and often blunt,” says one fellow director. Another describes him as “massively intrusive.”

A third, more charitably, says, “He has so much more energy than other people that he can overwhelm entrepreneurs…If Vinod’s on the board, the CEO needs a senior vice president in charge of managing him.”

As we talk around a table in his office, Khosla pulls out a laptop and runs me through one of his numerous PowerPoint presentations, flipping the slides quickly until he reaches a diagram of possible remedies for global warming. “I get so many proposals that unless I have in my head what areas I will be interested in ahead of time, it doesn’t really work,” he tells me.

He’s a tireless promoter, speaking at dozens of conferences a year. To contrast himself with Al Gore, now a member of Kleiner Perkins, Khosla likes to focus on what he calls “solutions, not problems.” The presentation he shows me, his favorite, is entitled “Mostly Convenient Truths From a Technology Optimist” — among them that global warming is “a technology crisis, not a resource crisis” and that solutions to large problems require “a dash of greed.”

To mainstream environmentalists, some of his views are heretical. He contends that hydrogen fuels are a dead end. Although he drives a hybrid car, he believes that hybrids won’t significantly slow global warming. And he’s convinced that, in most places, energy from solar panels will for many years be much too expensive.

“There are only four problems with global warming,” he tells me, “oil, coal, cement, and steel. If we do those four, we’re done.”

Done, however, is for tomorrow. Despite his ambitious plans and hundreds of millions of invested dollars, Khosla’s companies are still in the early stages. Calera is typical; it is only now preparing to open its first cement plant, on a 200-acre site next door to a gas-fired electric-power utility.

Carbon-dioxide-laden exhaust from the power plant will be captured and used to make and dry the cement. Calera plans to be in pilot production by the end of the year, in commercial operation by 2010, and running 100 sites in North America five years later.

As our meeting comes to an end, Khosla closes his laptop and heads back to work on the biomass paper. An academic is helping him with this one, which he hopes will be accepted by Science or Nature, the prestigious scientific weeklies. “Think of it,” he says as he turns away. “Publication in a peer-reviewed journal. What other venture capitalist would even try to do that?”

India’s BPO story continues to bring cheer despite the economic slowdown. And Genpact is the leader of the pack in the Indian BPO space.

According to Nasscom, the Indian IT-BPO industry (including domestic market) recorded an overall growth of 28 per cent (currency adjusted), clocking revenues of $52 billion in FY07-08 up from $39.6 billion in FY06-07. The BPO exports are up by 30 per cent (in US dollars), registering revenues of $10.9 billion.

So which are India’s top 10 BPO companies? Read on to find out. . .

1.Genpact

Genpact was born in 1997 as the India-based business process operations for GE Capital. In 2005, with equity investments from General Atlantic and Oak Hill Capital Partners, it became an independent company and was rebranded Genpact. It is India’s No. 1 BPO firm.

Genpact manages business for companies around the world with a network of more than 30 operations centres in nine countries. Genpact offers services in finance and accounting, collections and customer service, insurance, supply chain and procurement, analytics, enterprise application and IT infrastructure.

Headed by Pramod Bhasin, the company had a staff strength of over 34,300 employees as on March 31, 2008. Its revenues for the year 2007 stood at $822.7 million.

The Nasdaq-listed company with more than 9,000 professionals was set up in 1996. Neeraj Bhargava is a co-founder of WNS (Holdings) Ltd and group chief executive officer. It posted a quarterly revenue of $116.1 million for the fourth quarter ended March 31, 2008, up 4.9 per cent from the corresponding quarter last year. Its revenues stand at $459.9 million, up 30.5 per cent from fiscal 2007.

The five-year old IBM Daksh was created by four profesionals — Sanjiv Agarwal, Pawan Vaish, MJ Aravind and Venkat Tedanki — who saw a great opportunity in the business process outsourcing space. With no business model to follow, it was a big challenge to set up the company.

IBM Daksh is known for a good leadership, a focussed vision and an undying passion. In April 2004, IBM Corporation acquired Daksh e-Services to serve as a global hub to manage business processes for clients from across the world.

With 14 service delivery centres in India, IBM Daksh has more than 36 centers around the world. Today IBM Daksh employs more than 20,000 people. Pavan Vaish is the chief executive officer of IBM Daksh Business Process Services. A co-founder of Daksh eServices, he has been with the organisation since January 2000.

Aditya Birla Minacs is part of the $24 billion global conglomerate, the Aditya Birla Group. Aditya Birla Minacs was formed when Minacs, Canada’s leading BPO company, and TransWorks, the BPO arm of Aditya Birla Group, joined hands to become a leading global business process outsourcing player.

Aditya Birla Minacs clocked revenues to the tune of $392 million (or about Rs 1,575 crore) till March 2008, a 17 per cent rise over the previous year’s $335 million. With over 26 years of experience, Aditya Birla Minacs offers BPO solutions for Fortune 500 clients. Minacs has more than 12,000 employees at locations in North America, Europe and Asia.

Dataquest (annual Top 20 BPO listing) – Ranked as India’s No 2 BPO company
NASSCOM 2006-07 – Ranked as India’s third largest BPO, based on export revenues
NASSCOM – Among Top 100 IT innovators in India IT People Group

5.TCS BPO

TCS BPO is one of the leader players in the outsourcing industry. It offers services in areas such as finance and accounting, banking, HR outsourcing, KPO, insurance, payroll, healthcare, telecom, media, travel and entertainment.

TCS operates from more than 41 countries and has more than 155 offices across the globe. Its head office in India is located in Bangalore. It has branches in Mumbai, Gurgaon, Goa, Hyderabad, Pune, Lucknow and many other places in India.

While Tata Consultancy Services is India’s top software company, TCS BPO established a stronghold in the BPO space. The TCS group posted a consolidated net profit of Rs 1,290.61 crore (Rs 12.90 billion) for the first quarter ended June 30, 2008, an increase of 7.3 per cent compared to the year-ago period.

Accolades for TCS BPO

In 2006, TCS BPO was named as one of the world’s top BPO providers by the International Association of Outsourcing Professionals

6.Wipro BPO

Wipro BPO has carved a unique position in the outsourcing industry. In 2002, Wipro took a quantum jump in the BPO services by acquiring the then Spectramind. Wipro BPO Solutions, complements the services offered by Wipro Technologies, making it one of the largest BPO service players.

Wipro BPO & Cairn India declared winner at the first annual ‘FAO Research Awards of Distinction’
Wipro BPO has been rated as a Best Employer in India in the Best Employers Hewitt Survey for 2007
Wipro BPO is the winner of the 2007 Global BPO Standard Bearer by IQPC

7.First Source

Firstsource (formerly ICICI Onesource) is a leading global business process management company. Founded in 2001, the company is ranked third in BusinessWeek‘s ‘Hot player’ list of offshore outsourcing companies.

The company has 17,000 employees in centres across India, the United States, the United Kingdom, Argentina and the Philippines. Ananda Mukerji is the managing director and chief executive officer. Its revenues for the year ended March 31 2008 stood at Rs 12,988 million, up 53.3 percent compared to the previous year.

Accolades won by First Source

Ranked among the top 10 ITES companies by NASSCOM, 2007
National Outsourcing Association (NOA) award for best Telecom outsourcing project, 2007

8.Infosys BPO

Infosys BPO Ltd, the business process outsourcing subsidiary of Infosys Technologies, was set up in April 2002. Today, it is ranked among the leading BPO companies in India by NASSCOM, Dataquest, the International Association of Outsourcing Professionals, Red Herring, FAO Today and NelsonHall.

Infosys conferred ‘Provider of the Year’ award by FAO Today in 2008
Listed among top BPO companies in Dataquest, the International Association of Outsourcing Professionals, Red Herring lists

9.HCL BPO

HCL BPO, a division of HCL Technologies Limited was established in 2001. With over 13,200 professionals operating out of India and Northern Ireland, HCL BPO runs fourteen delivery centres across India, UK and Malaysia.

The company has reported revenues to the tune of $220.9 million. HCL BPO also offers multilingual support in eight European languages and eight Asia, Pacific and Africa Collections (APAC) languages. HCL BPO’s focuses on sectors like telecom, retail, banking and financial services, insurance, hi-tech & manufacturing, and media, publishing and entertainment. Shiv Nadar is the founder, chairman and chief strategy officer of HCL Technologies.

Accolades of HCL BPO

Ranked second in Purdue Benchmark (2003) Global Peer Group of BPO Service Providers
Ranked third in Highest Satisfaction for Business Process Outsourcing by the Black Book of Outsourcing (2007)
Ranks among the Top 10 ITeS-BPO companies in India (NASSCOM & Dataquest)

10.EXL Service Holdings

EXL Service Holdings came into existence in April 1999 in Delaware, US. It was founded by a group of professionals including Vikram Talwar (now executive chairman) and Rohit Kapoor, who is now the CEO. Vikram was then the CEO and managing director of Ernst & Young, and Rohit managed international investments for clients at Deutsche Bank.

In August 2001, Conseco acquired EXL and operated as its wholly owned subsidiary. Later, in November 2002, Oak Hill Capital Partners L.P. and FTVentures along with members of the senior management team bought EXL from Conseco making it a third party pure-play business process outsourcing service provider.

The company has seen a fast-paced growth with 50 clients and a staff strength of 8,200 employees. Revenues for the quarter ended March 31, 2008 were $50.9 million compared to $39.9 million in the quarter ended March 31, 2007, an increase of 27.8 per cent.

Accolades for EXL Service Holdings

Recognised as one of the Top 100 hot growth companies for 2007
Among the top 10 best performing BPOs in CMP Media’s list
No.1 rising star in the Global Outsourcing list by International Association of Outsourcing Professionals